AptarGroup: The Leader in Dispensing Innovation

Containers and packaging products are essential for the storage, transportation, and protection of goods. As per the Sustainability Accounting Standards Board (SASB), the containers and packaging industry generates annual sales of approximately $314 billion globally. The majority of the industry’s listed companies are domiciled in the U.S. However, most companies have some operations outside the U.S., and the industry sells internationally as well.

AptarGroup Inc. (NYSE:ATR) is one of the most prominent players in this industry. AptarGroup is a global solution provider of a range of packaging and delivery solutions for different markets. The company operates in three segments which are as follows:

On July 28, this leader in dispensing innovation reported financial results for the second quarter ended June 30. Although the company has a strong business model, it reported mixed results due to a few challenged markets. The company’s reported sales decreased 11% to $594 million from $671 million a year ago. Excluding the negative impact from changes in currency exchange rates, core sales increased by approximately 2%. Reported earnings per share rose to a record $0.90 compared to $0.79 reported in the prior year. Second quarter pre-tax earnings included a positive impact of approximately $7.4 million (approximately $0.08 per share after-tax) related to a change in accounting for certain inventories from the last in, first out (LIFO) method to the first in, first out (FIFO) method. Year-over-year earnings growth was driven by improved operating margins across each segment. The company’s earnings increased roughly 14% to a record $0.90, compared to $0.79 reported in the prior year.

Selling, research, development and administrative expenses went down 7.43% year over year to $89.31 million from $96.48 million. Operating income increased 11.40% year over year to $95.52 million from $84.62 million. The company ended the quarter with cash and cash equivalents of $391.81 million compared to $399.76 million as of Dec. 31, 2014. Its long-term debt increased to $813 million as of June 30 from $588.89 million as of Dec. 31, 2014. During the second quarter of 2015, AptarGroup changed the method of valuing inventories at two U.S. locations that used the last in, first out (“LIFO”) method to the first in, first out (“FIFO”) method. The impact of the change resulted in pre-tax income in the second quarter of approximately $7.4 million, or approximately $0.08 per diluted share. A chart has been provided below to show the company's segment's performance.

AptarGroup’s increase in demand across multiple markets drove volumes higher in Pharma and Food + Beverage segments, offset by weakness in the Beauty + Home segment. In addition, currency headwinds affected each business segment.

Projections

For 3Q 2015

Earnings per share will be in the range of $0.77 to $0.82 compared to $0.73 per share reported in the prior year.

Expected adjusted earnings to be approximately 65 cents per share.

Long-term consolidated financial targets

Core sales growth will be in the range of 6-8%.

Adjusted EBITDA/sales percentage is expected to be 20%.

ROIC is expected to be 14%.

The dividend payout ratio will be in the range of 30-40%.

Other long-term targets

Maintaining a diversified business model.

Focussing on market application fields.

Making key acquisitions.

In the news

In the Beauty+ Home segment, AptarGroup has introduced solutions for cosmetics, and bag-on valve technology. In the beauty market, L’Oreal has selected AptarGroup’s fine mist spray pump for new Lancome fragrance. Further, this segment was recently recognized for its innovative aerosol accessory, Glide, during the Paris Aerosol & Dispensing Awards.

In the Food +Beverage segment, the SimpliSqueeze valve technology is gaining momentum. This year will be exciting for AptarGroup’s SimpliSqueeze valve technology as more food and beverage marketers begin to see the benefit in offering packaging solutions that increase their consumer’s overall product experience. Unilever recently launched a new, innovative package design and SimpliSqueeze technology for their Hellmann’s/Best Foods mayonnaise featuring a custom clean lock cap produced by AptarGroup.

In the Pharma segment, AptarGroup’s two largest therapeutic categories allergy and asthma continues its success. Recently, the company has partnered with Shanghai Sine Promod Pharmaceutical Co., Ltd. to develop and launch its new Budesonide DPI (Dry Powder Inhaler), which uses Aptar Pharma’s novel, user-friendly and cost-effective Twister Dry Powder Inhaler.

On a concluding note

Overall, AptarGroup is a rock solid company with a solid financial position, notable return on equity, and good cash flow. Further, the company is investing in research and development and in the capital projects necessary to support its long-term growth. There are certain macro-economic challenges such as stagnation affecting certain markets in Latin America and the global foreign exchange environment. But, the company will stay focused and execute its strategy to overcome those challenges. Therefore, I expect that this leader in dispensing innovation will deliver exceptional returns in the near future, and I would recommend this company as a buy.

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